Prices for the most popular DRAM (dynamic RAM) chips continue to fall in the first half of April, DRAMeXchange Technology reported Tuesday, and have dropped below the cost of production for many manufacturers.

Contract prices of the most widely used DRAM chips, 512Mb, 667MHz DDR2 (double data rate, second generation), dropped another 16.7 percent to $2.50 per chip, according to DRAMeXchange, a Taiwanese company that runs an online DRAM market.

Around three-fourths of all DRAM chips are bought and sold by contracts between DRAM makers and major PC vendors, such as Dell and Hewlett-Packard. The most recent quotation is for contract chip prices in the first half of April, and they indicate the supply of DRAM has far outpaced demand. The remaining DRAM is sold on open spot markets, like commodities such as oil and gold.

Although many analysts watch DRAM prices as an indication PC shipments might be slowing down, that's not likely the case this time. DRAMeXchange believes that many chip manufacturers have switched some production lines to DRAM from NAND flash memory, which had seen prices fall for nearly six months before recently stabilizing. The changeover has caused an oversupply in DRAM, while the glut in NAND flash memory has eased. There does not appear to be any abnormal problem in the PC market, analysts said.

"DRAM vendors may now choose to convert manufacturing back to DRAM again, but the turnaround for the conversion will take roughly three months, so DRAM pricing will not improve in the short term," said market researcher Gartner in a Sunday report.

Still, the falling price of DRAM represents a blow to memory chip makers. The cost of production for the chips is estimated at between $2.50-$3.00, therefore the recent contract pricing shows that at least some chip makers are likely producing DRAM at a loss. In the past, DRAM makers have opted to make the chips at a loss in order to maintain market share, but they do tend to balk at further price declines below the cost of production.

Users looking for more DRAM are likely to see the best prices in retail stores about a month after prices on global component markets fall. A number of analysts, including DRAMeXchange, expect the chip prices to bottom out in May, meaning the best prices for users should be in that month and shortly thereafter. There are other deals users can look for when DRAM prices fall. Many PC vendors will offer additional DRAM on new PCs as an incentive to buy, because they're able to buy DRAM for less. There is even room for them to reduce the price of a new PC due to lower component costs.

Currently, DRAM prices are falling, the price of LCD panels is stabilizing, and the price of the other most expensive part of a PC, the microprocessor, is also on a downtrend thanks to a battle for market share between Intel and Advanced Micro Devices.

Last year, DRAM prices surged 61 percent to end at $6.36 each as PC makers started making Vista-capable PCs and stockpiled excess chips ahead of the launch of the new OS. But it turns out that PC makers stockpiled too many of the chips, causing a glut and massive price declines.